Edited version of private ruling

Authorisation Number: 1011611153493

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Ruling

Subject: Withdrawing an applicable functional currency choice

Question 1

Can the entity withdraw, pursuant to item 1 of the table in subsection 960-90(1) of the Income Tax Assessment Act 1997 (ITAA 1997), its choice made under section 960-60 of the ITAA 1997, in its income year ending 31 December 2010?

Answer

Yes.

This ruling applies for the following period<s>:

1 January 2010 to 31 December 2011

The scheme commences on:

1 January 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The entity's 2009-10 income year commenced on 1 January 2010 and ends on 31 December 2010. The entity's 2010-11 income year commences on 1 January 2011 and ends on 31 December 2011.

All of the eligible tier one companies of Company X as at 1 July 2003, jointly chose to form a multiple entry consolidated (MEC) group (the MEC group), with effect from 1 July 2003.

The entity is the provisional head company of the MEC group.

The entity is an Australian resident company that is required to prepare financial reports under section 292 of the Corporations Act 2001.

The entity has made a choice under section 960-60 of the ITAA 1997 to use its applicable functional currency, being a particular foreign currency, with effect from 1 July 2003.

The Company X group was effectively acquired by Company Y during the year ended 31 December 2007. Accordingly, Company Y became the top company of the MEC group.

The entity intends to withdraw, in writing, its applicable functional currency choice, in its 2009-10 income year.

Assumptions

The Australian dollar (AUD) will become the functional currency of the MEC group under Accounting Standard AASB 121 The Effect of Changes in Foreign Exchange Rates, such that its foreign currency transactions shall be recorded, on initial recognition, in AUD (in accordance with paragraph 21 of AASB 121) on and from 1 January 2011.

The AUD will be the predominant currency in which the MEC group keeps its accounts (within the meaning of section 960-70 of the ITAA 1997) on and from 1 January 2011.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 960-60

Section 960-90

Summary

The entity can withdraw, pursuant to item 1 of the table in subsection 960-90(1) of the ITAA 1997, its choice made under section 960-60 of the ITAA 1997, in its income year ending 31 December 2010.

Detailed reasoning

If a taxpayer has made a choice under section 960-60 of the ITAA 1997, section 960-90 of the ITAA 1997 has effect to allow withdrawal of that choice. Item 1 of the table at subsection 960-90(1) of the ITAA 1997 states that if:

a) you are an Australian resident who is required to prepare financial reports under section 292 of the Corporations Act 2001; and

b) your applicable functional currency has ceased to be the sole or predominant currency in which you keep your accounts (within the meaning of section 960-70)

you may withdraw your choice with effect from immediately after the end of the income year in which you withdraw your choice. Subsection 960-90(2) of the ITAA 1997 makes clear that a withdrawal of your choice must be in writing.

The entity has made a choice under section 960-60 of the ITAA 1997 to use its applicable functional currency.

The entity is an Australian resident that is required to prepare financial reports under section 292 of the Corporations Act 2001. As the AUD will be the predominant currency in which the MEC group keeps its accounts (within the meaning of section 960-70 of the ITAA 1997) on and from 1 January 2011, it follows that the entity's applicable functional currency will have ceased to be the sole or predominant currency in which it keeps its accounts (within the meaning of section 960-70) by or on 31 December 2010.

The requirement at paragraph (a) of item 1 of the table in subsection 960-90(1) of the ITAA 1997 is satisfied. The requirement at paragraph (b) of item 1 of the table in subsection 960-90(1) of the ITAA 1997 will be satisfied by, at the latest, 31 December 2010. It follows that the entity can withdraw, pursuant to section 960-90 of the ITAA 1997, its applicable functional currency choice, in its income year ending 31 December 2010.

The entity's withdrawal must be in writing. If the entity withdraws its choice, pursuant to section 960-90 of the ITAA 1997 in its income year ending 31 December 2010, that withdrawal will take effect immediately after the end of that income year. Thus, that withdrawal would take effect for the entity for practical purposes, immediately on and from 1 January 2011.

If the entity wishes its withdrawal to have effect immediately after 31 December 2010, that withdrawal must be made in writing on or before 31 December 2010, and the entity's applicable functional currency must have ceased to be the sole or predominant currency in which it keeps its accounts (within the meaning of section 960-70) by or on 31 December 2010.

There is no circumstance in which a withdrawal in writing by the entity of its applicable functional currency choice, made on or after 1 January 2011 can have effect immediately after 31 December 2010.